Appendix A3

Taiwan’s Industrial Technology Research Institute: A Cradle of Future Industries

Taiwan’s Industrial Technology Research Institute (ITRI) is a not-for-profit research organization established in 1973 to provide applied industrial research for Taiwanese industry. ITRI draws upon research conducted all over the world in companies, research organizations and universities and uses the knowledge to develop product prototypes and the processes, equipment and materials necessary to manufacture those prototypes. It fosters not only the creation of companies that make new products, but of entire industry chains supporting the manufacturing process, including design, materials, equipment, testing, packaging, quality control and applications. ITRI “has played an integral role in transforming Taiwan’s economy from a low-tech, labor-intensive model to a high-tech, knowledge-based industrial core.”1 ITRI’s formation was the most important aspect of a broad national effort to develop Taiwan’s semiconductor industry, a spectacular success which has subsequently driven the growth of Taiwan’s capabilities in computers, lighting, displays, telecommunications, photovoltaics, and machinery.

ITRI is located in one of the most successful technology “clusters” in the world, grouped in and around Hsinchu Science Park (HSP), a research and high technology industrial zone established by the government in 1980.2 In addition to ITRI, two world class research universities, National Tsing Hua University (NTHU) and National Chiao Tung University (NCTU) adjoin the park, which is the site of research and manufacturing operations of over 400 high technology companies. Most points within this complex are within

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1Allen Hsu, “ITRI Pushes Technology Sector to New Frontier of Innovation,” Taiwan Journal (October 19, 2007).

2Michael Porter defines “clusters” as “geographic concentrations of interconnected companies, specialized suppliers, service providers, firms, in related industries and associated institutions … in particular fields that compete but also cooperate. Michael Porter, On Competition (Boston: Harvard Business School Printing, 1998) pp. 197-198.



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Appendix A3 Taiwan’s Industrial Technology Research Institute: A Cradle of Future Industries Taiwan’s Industrial Technology Research Institute (ITRI) is a not-for- profit research organization established in 1973 to provide applied industrial research for Taiwanese industry. ITRI draws upon research conducted all over the world in companies, research organizations and universities and uses the knowledge to develop product prototypes and the processes, equipment and materials necessary to manufacture those prototypes. It fosters not only the creation of companies that make new products, but of entire industry chains supporting the manufacturing process, including design, materials, equipment, testing, packaging, quality control and applications. ITRI “has played an integral role in transforming Taiwan’s economy from a low-tech, labor-intensive model to a high-tech, knowledge-based industrial core.”1 ITRI’s formation was the most important aspect of a broad national effort to develop Taiwan’s semiconductor industry, a spectacular success which has subsequently driven the growth of Taiwan’s capabilities in computers, lighting, displays, telecommunications, photovoltaics, and machinery. ITRI is located in one of the most successful technology “clusters” in the world, grouped in and around Hsinchu Science Park (HSP), a research and high technology industrial zone established by the government in 1980.2 In addition to ITRI, two world class research universities, National Tsing Hua University (NTHU) and National Chiao Tung University (NCTU) adjoin the park, which is the site of research and manufacturing operations of over 400 high technology companies. Most points within this complex are within 1 Allen Hsu, “ITRI Pushes Technology Sector to New Frontier of Innovation,” Taiwan Journal (October 19, 2007). 2 Michael Porter defines “clusters” as “geographic concentrations of interconnected companies, specialized suppliers, service providers, firms, in related industries and associated institutions … in particular fields that compete but also cooperate. Michael Porter, On Competition (Boston: Harvard Business School Printing, 1998) pp. 197-198. 285

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286 21ST CENTURY MANUFACTURING walking distance of each other, a proximity which fosters personal interchange and cross-pollination of ideas. NCTU, NTHU and ITRI train large numbers of workers for the industries in HSP; company executives and ITRI officials teach in the two universities; and university professors turn to ITRI for assistance in developing practical applications of new ideas and sit on advisory boards of local companies. ITRI “has been praised as the incubator of Taiwan’s chief executive officers of publicly held companies and talents for industries,” and the same could be said of NCTU and NTHU. 3 The companies located in HSP account for about 15 percent of Taiwan’s GDP, making the park one of the most productive pieces of real estate on earth.4 The creation of ITRI, perhaps the most important milestone in the entire course of Taiwan’s industrialization, was the brainchild of an elite group of highly competent bureaucrats and business leaders, most of them holding degrees in engineering.5 They frequently had extensive experience working for multinational high technology companies and were in a position to apply their practical experience to the development of indigenous companies and industries.6 They were relatively unhindered by political pressure—the Kuomintang Party (KPT), which held a monopoly on political power until 1990, had a tradition of relying on “scientific” government planning when it arrived on Taiwan in 1949, and technocrats “had already won a large measure of independence from party and military control.”7 This pattern was maintained 3 As of late 2006 ITRI had cultivated over 60 CEOs and 18,000 specialists for Taiwan’s high tech industries. “ITRI Transforms Into a Value Creator from a Tech Follower,” Taiwan Economic News (October 24, 2006). 4 Interview with Han-Ping David Shieh, National Chiao Tung University, Hsinchu, Taiwan, February 16, 2012. In 2007, the Geneva-based World Economic Forum ranked Taiwan in first place worldwide in industrial clustering competitiveness, a distinction “attributed mainly to the effect of the world-renowned Hsinchu Science Park.” “Taiwan Ranks 1st Place in Industrial-Clustering Competitiveness Worldwide: WEF,” Taiwan Economic News (December 26, 2007). 5 Eleven of the first fourteen individuals to serve as Minister for Economic Affairs in Taiwan held degrees in engineering or science. K.Y. Lin, Taiwan’s chief economic planner in the 1950s and early 1960s, had a degree in electrical engineering, and of his two assistants, one was a physicist and the other a civil engineer. MOEA’s Industrial Development Bureau, which created ITRI, was dominated by engineers at the time. Robert Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization (Princeton and Oxford: Princeton University Press, 1990), p. 98. 6 Morris Chang, with 25 years of experience at Texas Instruments, is a former head of ITRI and when he moved to set up TSMC, he founded TSMC and “loaded TSMC’s ranks with American-trained managers such as Britt Brooks, Doug Chance (the successive general managers of TSMC) and other international professional manager. Among the managers, most of them are Chang’s former colleagues at TI.” Chang’s “excellent education and work experience established his professional knowledge in the semiconductor industry and contributed to the creation of the focused business model of the pure play foundry.” Similar observations could be made with respect to many members of the generation of leaders which oversaw Taiwan’s economic development. T. H. Liu, S. C Hung, S. Y. Wu, and Y. Y. Chu, “Technology Entrepreneurial Styles: A Comparison of UMC and TSMC,” International Journal of Technology Management Vo. 29 ½ (2005) p. 681. SEMI Oral History Interview, Morris Chang (August 24, 2007, Taipei, Taiwan). 7 Chiang Kai-shek’s government, shaken by Japan’s seizure of Manchuria in 1931, came to believe that its survival depended on governing through a highly educated and professional bureaucracy.

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APPENDIX A3 287 during the decades of KMT rule but is eroding with the advent of democracy and challenges to KMT policies by the Democratic People’s Party (DPP).8 ITRI has deep American roots. Its founder, Y.S. Sun, formulated a developmental strategy for high tech industry in Taiwan based on discussions in the early 1970s with a colleague, Dr. Pan Wen-Yuan, an electrical engineer then employed in RCA’s David Sarnoff Laboratories in New Jersey. The two men determined that Taiwan should develop a semiconductor industry, that acquisition of U.S. technology would be required, and that Chinese engineers working in U.S. technology companies would be an important asset for such an effort.9 RCA trained the first cadre of ITRI engineers in semiconductor manufacturing technology, a number of whom were U.S. residents holding Ph.Ds. from U.S. universities. The Taiwanese development effort was advised by a “Science and Technology Advisory Group” (STAG), established in 1979, led by U.S. semiconductor executives, including Pat Haggerty, former CEO of Texas Instruments and former member of the National Academy of Sciences, and B.O. Evans, former VP for development at IBM.10 Hsinchu Science Park represented a deliberate effort by Kuo-Ting Li, a Taiwanese leader known to posterity as the “architect of Taiwan’s economic miracle,” to replicate the best features of California’s Silicon Valley in Taiwan. 11 HSP’s first director was an American, Dr. Choh Li, formerly a research director at Honeywell in Chiang promoted senior officials who believed in keeping economic policymaking insulated from political interference. Chiang’s philosophy was paraphrased by a KMT official as “governments and political forms are transitory, the problems facing a nation are not.” Chiang’s son, Chiang Ching- kuo, who succeeded him in 1972, believed in recruiting “the central economic decision-makers according to demonstrated technical abilities.” Wade, Governing the Market (1990) op. cit. pp. 247- 248 8 In 2006, Taiwan Premier Su Tseng-chang, a member of the KMT’s rival party, the Democratic People’s Party (DPP), visited ITRI, praised the organization for its achievements, and commented that he envied ITRI “because the researchers can commit themselves to professional studies without political interference.” “ITRI Has Contributed Greatly to Taiwan: Premier,” Asia Pulse (May 23, 2006). In fact the DPP tends to view ITRI as a KMT stronghold supporting business interests aligned with that party. Voices within the DPP reportedly suggest that if the government plans to spend money on industries, the funds would be better directed toward fisheries and agriculture. 9 John A. Mathews and Dong-Sung Cho, Tiger Technology: The Creation of a Semiconductor Industry in East Asia (Cambridge: Cambridge University Press, 2000) p. 158. 10 STAG initially consisted of two Technical Review Boards (TRBs), one for semiconductors and one for electronics, dominated by overseas Chinese selected by Evans or his staff. Morris Chang recalls that “Pat Haggerty was really the major figure at TI. It was he that made TI a big successful company. TI was a very small unknown and not all that successful company before him. He was the one that made the key decision of entering the semiconductor business.” “Oral History of Morris Chang,” recorded August 24, 2007 (Computer History Museum, 2007) p. 7. 11 Li, a former Finance Minister, consulted with Frederick Terman on how Taiwan could replicate Silicon Valley. Terman served as Dean of Stanford’s School of Engineering and spearheaded the establishment of what is now Stanford Research Park. Together with William Shockley he is widely regarded as the father of Silicon Valley. Similarly, Li, the founder of Hsinchu Science Park, is credited with transforming Taiwan from an agrarian country to a high technology center. “Fred Terman, the Father of Silicon Valley,” Net Valley (October 21, 2010).

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288 21ST CENTURY MANUFACTURING Minneapolis.12 Morris Chang, perhaps the most famous person to head ITRI and the founder of Taiwan Semiconductor Manufacturing Corporation (TSMC), holds two degrees from MIT, a doctorate from Stanford and served for over 20 years with Texas Instruments, including time as the company’s CEO. At present, four decades after its creation, a large proportion of ITRI’s total work force still holds bachelors and advanced degrees from leading U.S. universities. THE TECHNOLOGY INTERMEDIARY An industry analyst quoted in The Economist observed in 2010 that Taiwan was “the best place in the world to turn ideas into physical form.”13 That fact is substantially attributable to ITRI, which functions as the bridge between ideas and form, or as its managers express it, as a “technology intermediary” serving Taiwanese industry. Its primary function is not research but adaptation and transfer of technology from domestic and overseas laboratories to domestic companies. ITRI is “arguably the most capable institution of its kind in the world in scanning the global technological horizon for developments of interest in Taiwanese industry, and executing the steps required to import the technology—either under license or joint development— and then absorbing and adopting the technology for Taiwanese firms to use …”14 Technology is transferred to Taiwanese industry through a variety of channels, including licensing, patent auctions, co-development arrangements, spinoffs, migration of ITRI personnel to companies, and research consortia and alliances. Strategic Direction Although Taiwan’s National Science Council (NSC) is formally responsible for formulating the country’s science and technology policy, and ITRI is subordinated to the Ministry of Economic Affairs, strategic direction has determined through a consultation process involving foreign experts and ethnic Chinese with relevant experience in multinational companies: “a distinctive feature of Taiwan’s technology policy making is the extensive participation of overseas technologists, mostly of ethnic Chinese origins, as advisers. Enjoying a varying level of access to the top policy circle, they help policymakers identify the industrial sectors with technological promise, 12 Constance Squires Meaney, “Taiwan’s Semiconductor Industry,”: in Joel D. Aberbach, David Dollar and Kenneth Sokoloff, (eds.) The Role of the State in Taiwan’s Economic Development (Armonk, NY: M.E. Sharpe, Inc., 1994) p. 178. 13 “Hybrid Vigour,” The Economist (May 27, 2010). 14 John A. Mathews and Dong-Sung Cho, Tiger Technology: The Creation of a Semiconductor Industry in East Asia (Cambridge: Cambridge University Press, 2000).

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APPENDIX A3 289 FIGURE APP-A3-1 ITRI as a technology intermediary. suggest the strategies of technology transfer and adaptation, and provide technical expertise for the daily operation of research projects.”15 MOEA determines ITRI’s strategic direction in consultation with such experts and ITRI itself. The Technical Advisory Committee (TAC), originally an informal group of expatriate Taiwanese engineers working in the United States, evolved into a standing organization of Taiwanese with international education and work experience advising ITRI on relationships with multinational corporations. 16 The Science and Technology Advisory Group (STAG), which advises the Executive Yuan (cabinet) on science and technology policy, includes international experts (occasionally including Nobel Prize winners) as well as eminent Taiwanese academics and holds an annual Industrial Science and Technology Strategy Conference, which addresses themes in areas such as electronics, telecommunications, information technology and 15 Chen-Dong Tso, “State-Technologist Nexus in Taiwan’s High Tech Policymaking: Semiconductor and Wireless Communications Industries,” Journal of East Asian Studies (May 2004). 16 Dr. Chintay Shih, former president of ITRI, commented in 2009 that “The TAC were our tutors and lighthouse. They have contributed the rest of their lives without any payback.” Thirty years after ITRI’s formation some of the original TAC members were still serving as consultants to ITRI. Cristina Chen, Jason Kao, Frans Nauta, Jan-Frens Van Giessel, Clement Goossens and Pipijn Veling, Excellent Government on a Far-East Silicon Island (December 2009).

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290 21ST CENTURY MANUFACTURING biotechnology.17 STAG prepares developmental technology blueprints for specific industry sectors regarded as important.18 The Technical Review Board (TRB) of the National Science Council consists of foreign and domestic experts who concentrate on targeting particular technologies and adapting them at the operational and project level. A number of key Taiwanese experts have served in more than one capacity in such organizations.19 This multifaceted and cosmopolitan advisory system has been widely praised, but has fostered failures as well as successes.20 Ding-Yuan Yang, a former ITRI official who founded Winbond Electronics Corporation in 1987, explained in a 2011 oral history interview that the founder of ITRI, MOEA Minister Y.S. Sun, would use the conferences with experts to absorb opinions on the development of technology. MOEA would then draft formal minutes of the conferences, “and then the plans would start.” MOEA would give “suggestions” to ITRI for execution. ITRI would respond by proposing contracts with the Ministry, sign the contracts, and begin to execute them. “These kinds of national projects were all four-year contracts, which allowed it to have a certain continuity.”21 Organization ITRI was formed through the combination of three existing research centers subordinated to MOEA which were relocated to a new site in Hsinchu in 1973.22 At its inception ITRI consisted of 400 employees and was funded by a 17 STAG was at one time headed by Frederick Seitz, former president of the U.S. National Academy of Sciences. “STAG Provides Policy Suggestions,” Taiwan Today (June 15, 2001).“The Science and Technology Advisory Group Must Take its Job Seriously,” United Daily News (Taipei, November 13, 2009). Arthur Carty, a Canadian nanotechnology who was invited to join STAG in 2008, recalled in 2010 that in a recent week-long STAG meeting, “government officials, industry professionals, research and development experts and academics reviewed and discussed a number of investment proposals before throwing out the bad ones. We don’t have anything like that in Canada,” Carty said. “Taiwan’s Technology Success Underappreciated: Canadian Scientist,” Focus Taiwan (July 24, 2010). 18 “M-Taiwan Program and Objectives of WiMAX in Taiwan,” WiMAX360° (June 24, 2009). 19 Dr. Hwa-Nien Yu, one of the world’s foremost experts on semiconductor device technology and design, has chaired the TAC for ITRI since 1993. He also served on the TRB and has been advising ITRI in various capacities since the 1970s. He is an emeritus member of IBM Research with B.S., M.S. and Ph.D. degrees in electrical engineering from the University of Illinois. 20 Based on advice from STAG, in 1982 the Taiwanese government decided to place a priority on the development of a biotechnology industry. Major financial and institutional commitments were subsequently undertaken. Today, thirty years after this effort began, it is not at all clear that the modest results achieved to date represent an adequate return on Taiwan’s major investment. See generally Yu-Shan Wu, Academia Sinica, “Taiwan’s Developmental State: After the Economic and Political Turmoid,” Paper prepared for delivery at the Conference on A Decade After the Asian Financial Crisis, Thammasat University, Bangkok, February 23-24, 2007, p. 22. 21 Interview with Ding-Yuan Yang, “Taiwanese IT Pioneers: D.Y. (Ding-Yuan) Yang,” recorded February 23, 2011 (Computer History Museum) p. 12. 22 The research centers were the Uni-Chemical Research Centre, the Metal Research Centre, and the Mineral Industrial Research Centre, all of which became internal ITRI research laboratories.

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APPENDIX A3 291 government budget of $213 million. In 1974, the Electronics Industry Research & Development Centre was established within ITRI to create a domestic semiconductor industry, subsequently being renamed as the Electronics Research & Service Organization (ERSO). In 1990, new laboratories were established for computer and communications research and biomedical engineering.23 Currently, ITRI’s R&D activities are centered on six core laboratories pursuing “deeper and new” ideas and eight technology centers which focus on particular themes emphasizing a multidisciplinary approach and drawing on the specialized competencies of the core laboratories. ITRI’s Business Development Unit is responsible for commercializing research results, technology transfer, and relations with foreign research partners. FIGURE APP-A3-2 ITRI’s organization. 23 Min-ping Huang, “The Cradle of Technology: the Industrial Technology Research Institute,” in Terence Tsai and Bor-Shiuan Cheng (eds.). The Silicon Dragon: High Tech Industry in Taiwan. (Cheltenham, UK and Northampton, MA: Edward Elgar, 2006) pp. 27-28. ITRI undertook a fundamental restructuring of its organization in 2006 with an eye toward “silo-breaking” among its research laboratories, which were seen as competing with each other for resources and not collaborating sufficiently. ITRI’s eight core laboratories were reduced to six through the merger of its semiconductor and optoelectronics labs and its materials and chemical labs. “Technology centers” were established and tasked with integrating the work of multiple ITRI core laboratories.

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292 21ST CENTURY MANUFACTURING ITRI’s budget is currently about $600 million per year, half of which is provided by the government and half by the private sector. 24 ITRI employs 5,728 personnel, of which 1,163 hold Ph.Ds. and 3,152 masters’ degrees. ITRI’s staffing of research projects is “very bare bones,” even in technology areas regarded has having breakthrough potential.25 Technology Acquisition In ITRI’s early years it relied almost entirely on the acquisition of technology and know-how from foreign high technology companies, which it disseminated to Taiwanese industry. In recent decades the research capabilities of Taiwan’s universities, including the Hsinchu-based National Tsing Hua and National Chiao Tung Universities, have emerged as increasingly important sources of technology. As ITRI’s reputation as an R&D powerhouse has grown, it has become possible for the institute to enter into joint R&D projects with first-tier foreign companies and research organizations. 26 Technology obtained via such collaborations remains a vital aspect of ITRI’s operations. 24 Private sector income is derived through activities such as sale of intellectual property to industry, provision of knowledge-based services to industry, other forms of technology transfer, and royalty payments. ITRI’s budget has not grown for many years despite pleas from industry to MOEA to increase ITRI’s funding. Interview with John Chen, Director, ITRI Display Technology Center, Hsinchu, Taiwan, February 14, 2012. Interview with Taiwanese semiconductor executive, Hsinchu, Taiwan, February 15, 2012. ITRI’s budget is subject to periodic public pressure based on the perception that it is channeling public resources to companies and industries that are already mature and do not need public assistance. In 1994, ITRI’s budget was cut in half by the Legislative Yuan based on such criticism. Douglas B. Fuller, Globalization for Nation Building: Industrial Policy for High Technology Products in Taiwan (MIT Working Paper MIT-IPC-02-002, January 2002), p. 12. 25 Interview with Taiwanese semiconductor executive Hsinchu, Taiwan, February 15, 2012. ITRI recruits employees by offering them a good work environment, a large working team, and excellent career development prospects. Taiwan’s system of compulsory military service has served as a major source of educated personnel for ITRI. The Ministry of National Defense assigns 400 soldiers to ITRI annually, of which 70 percent are graduates of the leading universities in Taiwan. Only 10 percent of Taiwan’s soldiers are qualified for assignment to ITRI. They serve at ITRI for at least four years as an alternative to active military duty. Terence Tsai and Borshivan Cheng, The Silicon Dragon: High-Tech Industry in Taiwan (Edward Elger, 2006) p. 32. Taiwan has had a system of compulsory military service since 1949. Alternatives to active duty military service include “national defense service,” which is available to draftees with advanced degrees, particularly in engineering and the sciences. Qualified individuals who choose this option receive three months of officer training and a commission in the reserves, followed by four years of work in a government or academic research institution such as ITRI or Academia Sinica. Annual turnover is extremely high, averaging about 10 percent but in some divisions rising to 15-20 percent, posing a continual challenge to management. Interview with Mao-Jian Wang, National Tsing Hua University, Hsinchu, Taiwan, February 16, 2012. 26 A number if ITRI’s foreign collaborations involve establishment of a research center on ITRI’s premises by the foreign partner. “Festo Inaugurates Automation Parts Engineering Center at ITRI,” Taiwan Economic News (February 9, 2004); Corning operates a research center within ITRI on glass technology including bendable glass. “Corning Inaugurates Research Center in Taiwan,” Asia Pulse (March 13, 2006). In a recent and significant example of technology acquisition from abroad, ITRI’s entry into the field of flexible electronics (bendable electronic devices and displays) was made possible by friendly technology transfer from Eastman Kodak Company to ITRI. Dr. John Chen,

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APPENDIX A3 293 TABLE APP-A3-1 ITRI Foreign Technology Partnerships Foreign Partner Year Initiated Themes Intel Corporation 2011 Memory chips Lawrence Berkeley National 2011 Renewable energy Laboratory Corning 2006 Optical glass, materials Microsoft 2005 Forward versatile disc (FVD) Alvarion Ltd. 2010 WiMAX, wireless Spirit Aerosystems 2009 Carbon fiber Hewlett Packard 2004 Radio frequency identification (RFID) IBM 2009 Cloud computing Novartis 2008 Pharmaceuticals Applied Materials, SUSS 2009 Semiconductor manufacturing Microtec equipment, 3D ICs SOURCES: “ITRI, Intel Announce Research Project,” Taipei Times Online (December 7, 2011); “ITRI Signs MoU with LBNL on Renewable Energy Technology Development,” Taiwan Economic News (August 11, 2011); “Corning Inaugurates Research Center in Taiwan,” Asia Pulse (March 13, 2006); “Microsoft Launches Windows Engineering Center in Taiwan,” China Post (September 10, 2005); “ITRI, Israeli Firm to Build WiMAX Testing Lab,” Central News Agency (February 9, 2010); “Taiwan Institute to Cooperate with U.S. Firm in Carbon Fiber Research,” Central News Agency (July 17, 2009); “HP Sets Up First RFID Center on the Island,” China Post (April 14, 2004); “ITRI to Spearhead Green Energy and Biotech Research,” Taiwan Economic News (September 7, 2009); “Novartis Signs Five Year Cooperation MoU with MOEA,” Taiwan Economic News (January 11, 2008); “ITRI and Applied Materials Team Up on 3DIC Technology,” ITRI Today (4th quarter 2009). Technology Development ITRI’s six core laboratories do not perform basic research, but are tasked with undertaking “exploratory and pioneering” research with respect to technologies with potential commercial applications.27 Projects can run five currently the Director of ITRI’s Display Technology Center, held numerous R&D managerial positions at Kodak between 1982 and 2006. Kodak, which had developed technology for large area roll-to-roll (R2R) fabrication of flexible displays, gave up on commercialization and sought to sell the technology “to someone who was competent,” eventually selecting ITRI. Chen led an ITRI team to Kodak’s labs in Rochester where a Kodak delegation worked with them to facilitate the technology transfer, which included transfer of equipment. ITRI’s subsequent development of R2R manufacturing processes for flexible displays was “all based on Kodak technology” but now exceeds the highest technological levels reached by Kodak. “This was the beginning of flexible displays [in Taiwan].” Interview with Dr. John Chen, Director, ITRI Display Technology Center, Hsinchu, Taiwan, February 14, 2012. 27 ITRI President Johnsee Lee, “ITRI Pushes Technology Sector to New Frontiers of Innovation,” Taiwan Journal (October 19, 2007).

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294 21ST CENTURY MANUFACTURING years or more.28 Their competencies are concentrated in hardware-related fields, although ITRI is working to refocus on software, systems and services.29 The core laboratories develop and test prototype products, production equipment and materials, and experiment with new applications.  Electronics and Optoelectronics Research Laboratories: ITRI’s Electronics and optoelectronics research laboratories focus on manufacturing technology in the fields of nano-electronics, micro- optical-mechanical electronics, optoelectronic 3D integrated circuit packaging, 3D image processing, flexible electronics, and advanced display technology. This laboratory is currently heavily involved in research involving flexible electronics.  Information and Communications Research Laboratory: ITRI’s Information and Communications Technologies Laboratory conducts research on core technologies for the development of IT-enabled services (ITES). This laboratory coordinates with other national projects involving system-on-chip, e-learning and telecommunications.  Green Energy and Environmental Research Laboratory: ITRI’s Green Energy and Environmental Research Laboratory conducts research in the areas of energy efficiency, clean environment, renewable and alternative energy, natural resources, and energy management and policy.30  Material, Chemical and Nanotechnology Research Laboratory: ITRI’s Material, Chemical and Nanotechnology Laboratory collaborates with Taiwanese companies to develop materials and components for application in the fields of electronics, green energy, optoelectronics, and panel display. In addition, it develops high-tech 28 Interview with John Chen, op. cit. 29 “An Interview With ITRI President Shyu Jyuo-min,” Taiwan Today (December 17, 2010). 30 In 2011, a research team from the laboratory won an Angel Business Communications; (ABC) Solar Industry Award, the first Asian laboratory to achieve this honor, for development of a “green energy antenna.” This device “integrates antenna transmission and solar panel power storage technology, simultaneously improving the conversion efficiency of solar energy optoelectronics and the efficiency of antenna reception and emission.” ITRI has reportedly secured international patent rights for the technology and is seeking “international cooperation partners for technology transfer.” According to estimates, application of the new technology at a 3-G base station with power consumption of 500W could product about 30 percent supplementary power mitigating peak hour power consumption and relieving the load on the power grid. Lillian Lin, “ITRI’s Green Energy Atenna Technology Wins Solar Industry Award” Central News Agency (September 7, 2011). This lab has developed carbon capture and storage (CCS) technology jointly with Taiwan Cement Corp. which reportedly cuts the cost of carbon capture from the current international level of over $45 per metric ton to under $26 per metric ton. “Taiwan Unveils Microalgal Biofuel Technology,” Central News Agency (October 2, 2010). It has also developed processes to transform microalgae into biodiesel fuel. “ITRI Wins Prominent Display Technology Award from Industry Group,” Central News Agency (May 19, 2011).

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APPENDIX A3 295 fibers and specialty chemicals intended to transform the textile and chemicals industries into high value-added sectors.31  Mechanical and Systems Laboratory: ITRI’s Mechanical and Systems Technologies Laboratory develops technologies to assist Taiwanese companies in the areas of precision manufacturing, green energy and intelligent automation.  Medical Device and Biomedical Technologies Laboratories: ITRI’s Medical Device and Biomedical Technologies laboratories are performing research to create and expand a biomedical industry in Taiwan that will develop products according to the “biomedical 3Ps (preventive, predictive, personalized). ITRI research projects are aimed at the development of technologies that can be commercialized, and involve the creation of specific product prototypes. ITRI’s main site in Hsinchu, Taiwan displays scores of recent product prototypes that have emerged from its laboratories, including a number that have won international R&D awards. In most cases, the commercial potential of these prototypes is readily apparent. Technology Integration ITRI operates a number of technology integration centers. ITRI "hopes the centers will become spin-off companies."32 The centers are more mission- oriented and dynamic than the core laboratories—new ones are frequently FIGURE APP-A3-3 Coordinating and integrating industrial technologies at ITRI. SOURCE: ITRI. 31 In 2011, this lab won the silver award of Display Component of the Year by the world’s leading display industry group, the Society for Information Display. The award was given for development of the first and only technology permitting mass production of flexible and transparent displays of all sizes. The ITRI team dedicated ten years to developing this technology. Oscar Wu and Mai Huang, “ITR Wins Prominent Display Technology Award from Industry Group,” Central News Agency (May 19, 2011). 32 Interview with Dr. Yi-Jen Chan, Director, ITRI Electronics & Optoelectronics Research Laboratories, Hsinchu, Taiwan, February 14, 2012.

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326 21ST CENTURY MANUFACTURING ITRI’s Electronics and Optoelectronics Research Laboratories (formerly ERSO) was trusted with developing a model for transactions between Taiwan’s chipmakers and equipment suppliers to foster procurement of locally-produced equipment.145 Nankang Integrated Chip Design Science Park In 2003, the government opened the Nankang Integrated Chip Design Science Park in Taipei, emphasizing the design of systems-on-a-chip (SoC). The park featured sites for IC design firms, an incubation center for start-ups, an open lab and a service and management section. The principle objective of the new park was to incubate IC design start-ups with up to 35 employees.146 The park was part of a broader national effort to promote indigenous silicon intellectual properties (SiP) in Taiwan, to streamline electronic design automation (EDA) software, and to promote the development of a domestic IC design industry.147 Taiwan’s Emerging Competitive Edge By 2007, Taiwan’s semiconductor industry led the world in a number of key technology areas including foundry manufacturing and testing. Taiwan had more state-of-the-art 12 inch wafer fabrication facilities than any other country in the world, 11 fabs.148 An ITRI official declared in 2007 that Taiwan’s semiconductor industry ranked “first in the world in competitiveness, with no other countries expected to rival it over the next few years.”149 TABLE APP-A3-8 Taiwan’s Competitive Position in Semiconductors, 2007. Category Global Rank Global Market Share (Percent) Foundry 1 66.6 Mask ROM 1 92.9 IC Packaging 1 44.4 IC testing 1 63.0 Large wafer size (10”+) 1 46.4 IC design 2 23.9 IC substrate 2 26.4 DRAM 2 22.4 SOURCE: Industry and Technology Intelligence Services (IT IS) cited in Hwa Meei Liou, “Overview of the Photovoltaic Technology Status and Perspective in Taiwan,” Renewable and Sustainable Energy Reviews (2010). 145 “Taiwan Gov’t Persuades Local Chipmakers to Buy Home-made Equipment,” Taiwan Economic News (November 27, 2007). 146 “World’s First System on Chip Design Center Will Open in Taiwan Industrial Park,” China Post (April 23, 2003). 147 “Taiwan Aiming to be Global SoC Design Center,” China Post (December 12, 2003). 148 “Taiwan a World Leader in 12-inch Wafer Foundries,” China Post (September 26, 2006). 149 “Taiwan Chip Industry Still Leads World in Competitiveness,” Asia in Focus (April 22, 2007).

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APPENDIX A3 327 ITRI is commonly said to have ended its support for the semiconductor industry because of the industry’s commercial success, but in fact, ITRI is engaged in significant developmental work in microelectronics. In 2008, ITRI organized the Advanced Stacked System Technology and Application Consortium to develop technology for 3-dimensional integrated circuits, based on the stacking of multiple thinned ICs with through-die area array interconnects between them.150 SUSS Microtec, a German semiconductor equipment supplier and developer of 3D integration technology joined the consortium in 2009.151 The leading U.S. semiconductor equipment vendor, Applied Materials, joined the consortium in 2009. The consortium established a 300 mm demonstration production line at ITRI using state-of-the-art equipment and materials to produce “through-silicon vias” (TSVS), a technique for making stacked memory and logic chips.152 Rambus, one of the world’s leading technology licensing companies, joined the 3D IC consortium in 2011.153 In early 2012, ITRI was reportedly in discussions with a fabless U.S. semiconductor company about a collaboration in which ITRI would manufacture the U.S. firm's 3D-1C design on a pilot line.154 In 2010, ITRI was reportedly working with a team of "dozens" at National Tsing Hua University to develop architecture for a high-density 3- dimensional nonvolatile resistive random access memory (RRAM) device that would consume less power and yield higher speeds than existing memory chips.155 In late 2011, ITRI exhibited a prototype high speed non-volatile RRAM which it had developed. The chip has up to 20 times the speed of a flash memory device but consumes only 20 percent of the power and can survive up to 10 years at a temperature of 200 degrees Celsius.156 As of February 2012 ITRI believed that it was “ahead of everybody” in RRAM technology, which it expected to license to Taiwanese companies.157 In December 2011, Intel Corporation announced a five-year collaboration with ITRI to develop ultra-fast and energy saving semiconductor memory products. The collaboration will focus on producing memory devices utilizing 3D IC stacking technology for applications in cloud computing data 150 The idea of stacking arose out the difficulty in moving lithography technology forward from the 32 nanometer line width node. Stacking is an alternative to further miniaturization of 2D IC devices. “Organizations Establish Taiwan’s 3D IC Consortium,” Taiwan Economic News (July 26, 2008). 151 “SUSS Microtec Cooperates with Research Institute ITRI on Technology Development in 3D Integration,” Business Wire (September 28, 2009). 152 “ITRI and Applied Materials Collaborate to Advance 3D IC Technology,” Business Wire (October 15, 2009). 153 “Rambus and ITRI Collaborate to Develop Interconnect and Advanced 3D Packaging Technologies,” Business Wire. 154 Interview with Dr. Yi-Jen Chan, Director, ITRI Electronics & Optoelectronics Research Laboratories, Hsinchu, Taiwan, February 14, 2012. 155 “Taiwan's Tiny RRAM,” IEEE Spectrum (November 2010). 156 “ITRI Shows Off Taiwan's Latest Technology,” Taiwan Today (October 6, 2011). 157 Interview with Dr. Yi-Jen Chan, Director, ITRI Electronics and Optoelectronics Research Laboratories, Hsinchu, Taiwan, February 14, 2012.

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328 21ST CENTURY MANUFACTURING centers and next-generation mobile devices.158 MOEA pledged to provide $5 million in funding for this project, which the General Director of ITRI’s Information and Communications Research Laboratory, Wu Cheng-wen, said would “enable Taiwanese DRAM chipmakers to produce more value-added chips utilizing existing technologies” not requiring a major investment in new equipment.159 Photovoltaics ITRI has been working to establish a photovoltaic solar equipment industry in Taiwan for over two decades, and “in the 2000s one can see the solar photovoltaic (PV) industry emerging as the ‘third pillar’ of Taiwan’s high-tech industrialization efforts” (the first two being semiconductors and displays.160 Taiwan’s existing competency in semiconductors is a major asset in the PV effort.161 Major Taiwanese companies like TSMC, AuO Optronics, Delta Electronics and possibly Formosa Plastics are investing in the industry, moves which “promise to transform the Taiwan industry and make it one of the world’s leading global players, alongside China, Germany, Japan and the USA.”162 In 1987, ITRI’s Energy and Mining Research Division began R&D on monocrystalline and amorphous silicon, materials used to manufacture solar photovoltaic cells. In 1988, Taiwan’s first solar cell company was established, Sinonar Amorphous Company, using technology developed by ITRI and founded by two former ITRI staffers. The new company focused on indoor solar cells using amorphous silicon. In 2004, ITRI spun off a solar cell company, DelPoint, a joint venture with Delta Electronics, which received technology, capital and staff from ITRI.163 The following year Delta began production of solar cells, and a large number of Taiwanese entered the solar cell companies business, some of which “[stole] talents from the government-backed Industrial Technology Research Institute (ITRI), some of whose laboratories 158 “Intel, ITRI Team Up on Memory R&D,” China Post (December 7, 2011). 159 “Government Makes Right Policy Call,” Taipei Times Online (December 12, 2011). 160 Mathews, Hsinchu Model (2010) op. cit., p. 11. 161 Morris Chang, the founder of TSMC, Taiwan’s largest semiconductor maker and an ITRI spin-off, was asked in a 2009 interview about his company’s entry into the light-emitting diode and solar cell industries. Interviewer: “You say TSMC wants to go into LEDs and solar cells. What core competencies does TSMC have in these areas?” Chang: “I won’t tell you outright that we have this capability. But LEDs and solar cells are semiconductors. When I was working on my Ph.D., my doctoral thesis was related to II-V compounds and LEDs were considered part of my field. The physics of LEDs are the same as they were for semiconductors.” “I’m Willing to Start from Scratch,” Commonwealth (June 18, 2009). 162 Mathews, Hu and Wu, “Fast Followers Dynamics.” (2011) op. cit. p. 190. 163 John A. Mathews, Mei-Chi Hu and Ching-Uan Wu, “Fast Follower Industrial Dynamics: The Case of Taiwan’s Emergent Solar Voltaic Industry,” Industry and Innovation (February 2011), pp. 186, 197.

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APPENDIX A3 329 developed the technology.”164 The government implemented a series of policy measures to foster the grown of the photovoltaic industry, providing subsidies for installation of photovoltaic power generation systems, including installation subsidies to households for up to 50 percent of the total cost of installing rooftop PV systems.165 In 2006, MOEA established the Taiwan Silicon Conference to develop a strategy for creating an industry supply chain in photovoltaics, an initiative that led to the establishment of Taiwan’s first polysilicon manufacturing company to provide upstream materials for PV cell makers. Photovoltaic supply chains now exist at three Taiwanese Science Parks. ITRI has emerged as Taiwan’s foremost source of expertise and research activity with respect to solar cells. Between 1984 and 2008 ITRI had secured or was pursuing applications for 1,940 patents in solar cell technology. In 2006, ITRI opened the PV Technology Center.166 ITRI-trained scientists and engineers have played an important role in the development of Taiwan’s solar TABLE APP-A3-9 Creating the PV Supply Chain Materials Cells Modules Systems Hsinchu Science Park WW Corp Gintech Gintech Delta SAS DelSolar DelSolar Neo Solar Central Taiwan Science Park Setek AUO AUO AUO SR Solar BMC Delta Delta Nextpower Nextpower Southern Taiwan Science Park Motech Motech Delta Delta E-Ton Nanowin SOURCE: Dr. Weileun Fang, National Tsing Hua University, Applications of Micro Tech for Renewable Energy at Taiwan: Progress and Prospects (2011). 164 “Taiwanese Enterprises Rush to Pan Gold in Solar Cell Business,” Taiwan Economic News (July 6, 2005); “Delta Electronics to Mass Produce Solar Cells in Q4,” Taiwan Economic News (August 22, 2005). 165 In 2007, the Executive Yuan’s Science and Technology Review Board recommended that Taiwan take advantage of its strong position in semiconductor and flat panel displays and its experience in developing strategic alliances with multinationals “to actively develop the photovoltaic industry.” In 2009, Taiwan enacted the Renewable Energy Development Act, which provided incentives for installation of renewable energy power generation, set up a fund for renewable energy, authorized subsidies to support the use of renewable-generated electricity, and made provision for creation of feed-in tariff (FIT) pricing schemes to make renewable energy competitive with fossil-fuel generated electricity. The government’s various incentive programs are summarized in Hwa Meei Liou, “Overview of the Photovoltaic Technology Status and Perspective in Taiwan,” Renewable and Sustainable Energy Reviews (2010). 166 Mathews, Hu and Wu (2011) op. cit. p. 197.

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330 21ST CENTURY MANUFACTURING cell industry.167 In 2007, ITRI decided to release 233 patents in the fields of solar energy and energy storage and efficiency to local Taiwanese companies. Most of the patents covered solar power generation, and were released in order to “[upgrade] local technology levels and assist … industries to expand their global market share in the wake of surging demand for green and clean energy.”168 In January 2010, ITRI spinoff TSMC acquired a 20 percent stake in Motech Industries, Taiwan’s largest maker of solar cells, for $196 million.169 Taiwan’s semiconductor manufacturers, including two ITRI spinoffs, are playing a significant role in the development of Taiwan’s thin film solar cell industry, a technology area holding great promise for solar power generation.170 In 2008, a UMC subsidiary, NextPower Technology Inc., was the first Taiwanese firm to begin volume production of thin film solar cells. 171 In 2010, TSMC began construction of a $258 million Thin Film Solar R&D Center and fab in Central Taiwan Science Park.172 Concurrently TSMC acquired a $50 million equity stake in California-based Stion, a start-up conducting R&D in CIG5 technology.173 ITRI has worked with several Taiwanese universities to develop modification in the thin-film PV CIGS manufacturing process that do not utilize toxic selenide.174 Taiwan’s MOEA has formed the CIGS Alliance, an ITRI technology-diffusion alliance which includes a number of small TF companies as well as large firms like TSMC and AU Optronics.175 By 2011, Taiwan’s solar cell industry ranked number two worldwide by production value ($4.3 billion), having surpassed Japan and Germany. Taiwan currently holds 20 percent of the world market for solar cells, and while 167 Dr. Kuo En Chang worked on battery research as an ITRI staffer in the 1990s. He joined Motech, one of Taiwan’s pioneering solar cell companies in 1999 as Chief Technology Officer, becoming President of Motech’s Solar Division in 2008. Dr. Sam Hung, President and CEO of Neo Solar Power, previously served as ITRI’s Research Director, Solar Energy Division. He also served as Vice President and Plant Director of Taiwan’s first amorphous silicon manufacturer, Sinonar Amorphous Silicon Solar Cell Co. “Editorial Advisory Board, PVTech, . 168 “Taiwan’s ITRI Releases Patents for Solar Power Technology,” Asia in Focus (September 27, 2007). 169 Motech’s CEO was a former TSMC executive responsible for materials and risk management at TSMC. TSMC CEO Morris Chang reportedly plans to back Motech’s efforts “to expand into a solar conglomerate from a solar cell maker.” “Solar Newcomer Makes an Impact as CEO of Motech,” Taipei Times Online (May 17, 2010). 170 So-called “thin film” (TF) photovoltaic cells hold great promise in the field of solar energy. TF cells are an alternative to full crystalline silicon (“thick film”) cells, and utilize a thin film of copper indium gallium selenide (CIGS) semiconductor materials on glass, permitting a substantial reduction in the cost of materials. 171 “NextPower Vows to Top Taiwan’s Thin Film Solar Cell Industry,” Taiwan Economic News (September 10, 2008). 172 The fab will be operated by a subsidiary, BMC Solar, with the first commercial shipments expected in 2012. “TSMC Solar’s First SIGSSe ‘5-Fab’ Prping for Commercial Production Ramp,” PV Tech (October 14, 2011). 173 “TSMC Sinks $50 Million Into Stealthy Thin-Film solar Startup Stion,” Venturebeat (June 16, 2010). 174 “ITRI Develops 3.5G Turnkey Solution for Thin-Film PV Production.” Digitimes (June 12, 2009). 175 Mathews, “Fast Follower Industrial Dynamics” (2011) op. cit. p. 196.

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APPENDIX A3 331 its revenues rank behind those of China, Taiwan is more technologically advanced than China in this field.176 Biotechnology Taiwan has been promoting the development of a biotechnology industry since the early 1980s but the results to date have been mixed at best, despite a massive deployment of government resources.177 In contrast to Taiwan’s developmental effort in microelectronics, in which ITRI was the governmental entity responsible for promoting the industry, in biotechnology, Taiwan’s “agencies and units involved are so numerous and diverse that a serious coordination problem has emerged.”178 Instead of a single main technology cluster (Hsinchu) which characterized the formative years of the semiconductor industry and continues to account for most of the semiconductor industry’s output, Taiwan has already established six biotechnology parks with more planned.179 The Development Center for Biotechnology (DCB), a government research organization formed to play an ITRI-like role as a technology intermediary—turning basic research into commercial products—has drifted into an emphasis on basic research.180 ITRI has long taken the position that Taiwan’s developmental efforts in biotechnology should be limited areas where the country could leverage existing strong competencies rather than risky, leaps into blue-sky areas with uncertain prospects. ITRI has argued that Taiwan should seek to integrate its medical research infrastructure with its strengths in electronics and the information and communications technologies. ITRI also favors establishment of a few centers of excellence in the handful of medical areas in which Taiwan is a world leader—most notably liver diseases—in order to attract multinational biopharmaceutical companies to the island for R&D.181 ITRI has concentrated 176 Taiwan Strives to Build International Brand Names,” Taiwan Insights (July 19, 2011). 177 “Taiwan’s Technology Success Underappreciated: Canadian Scientists,” Focus Taiwan (July 24, 2010); Dodgson, et al, “Taiwan’s National Innovation System” (2008) op. cit. p. 431. 178 Yu-Shan Wu, Academia Sinica, “Taiwan’s Developmental State: After the Economic and Political Turmoil,” paper prepared for delivery at the Conference on A Decade After the Asian Financial Crisis, Thammasat University, Bangkok, February 23-24, 2007. 179 Mark Dodgson, John Mathews, Tim Kartelles and Mei-Chih Hu, “The Evolving Nature of Taiwan’s National Innovation System: The Case of Biotechnology Innovation Networks,” Research Policy (2008), pp. 436-7. Despite the existence of erstwhile clusters, “The research institutes and firms are not effectively linked, nor are the science community and the ministries and agencies.” Yu- Shan Wa, “Taiwan’s Developmental State” (2007) op. cit. p. 23. 180 The DCB was founded in 1984 to close the gap between academia and industry in biotechnology. However, DCB has many more basic researchers on its staff than translation researchers. Wong, Chi-huey, President of Academia Sinica and a biochemist, commented that “what you’re seeing is that institutions in different roles have hired people from the same background who end up doing the same things. I think there should be more coordination.” Andrea Yung, “A Long Haul for Biotech,” Topics (October 2009). 181 “ITRI Advices Using Strengths in ICT for Biotech Industry,” Taipei Times (July 22, 2008). Reflecting the fact that hepatitis is one of Taiwan’s most prevalent diseases, ITRI has prioritized the

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332 21ST CENTURY MANUFACTURING its biotechnology efforts in areas of strength, and can point to some market success stories. One analyst observed in 2007 that “only in areas where biotechnology and microelectronics overlap can one find some prospect of success.”182 ITRI’s Medical Electronics and Device Technology Center (MED) is driving this effort.183 Taiwanese medical device makers have already made significant inroads in some global markets. ITRI established a Biomedical Engineering Center in 1999 (BMEC), which was split in 2006 to form the Biomedical Engineering Research Laboratories (BEL) and the Medical Electronics and Device Technology Center (MED). BMEC’s Biochip Program combined research efforts of five ITRI laboratories to develop DNA microarray and microfluidics technology, which is essential to the rapid unraveling of the human genome. Sixteen patents from this effort were transferred from ITRI to a spin-off company, Phalanx Biotechnology Group, established in 2003. The research effort organized by ITRI drew in the Canadian Genetic Diseases Network (CGDN) and the Information System for Biotechnology (ISB), a U.S.-based research organization. Using ITRI’s technology, Phalanx was able to drop the price of one gene chip from about $1,000 down to $50-80 per slide. A CGDN executive commented that “we have looked at technologies from around the world and we are sure this is the best tech available [in the field of gene chips].”184 In 2002 ITRI spun off CESCO Bioengineering Co., Ltd., comprised of eight team members from ITRI’s Tissue Engineering and Biomaterial Laboratory, to commercialize high cell density culture technology.185 CESCO developed a novel disposable pact bed contractile (DPBC) bioreactor suitable TABLE APP-A3-10 Global Share for Taiwanese Medical Devices Item 2009 Global Market Share (Percent) Digital blood pressure monitor 42 Electric wheelchair/scooter 30 Electric ear thermometer 30 Electronic thermometer 60 Pre-filled IV auto injector 50 SOURCE: Dr. Chei-Hsiang Chen, Director, Biotech & Pharmaceutical Industries Program office, MOEA Taiwan’s Biotech Industry Overview, October 21, 2010. study of liver diseases. It has developed the world’s most comprehensive liver proteome database as well as projects with applications in fighting liver ailments, including high density microarray gene chips, new herbal medicines to combat liver disease, tissue engineering for artificial livers, and non- invasive liver disease medical instruments. “Taiwan Strengthens Liver Disease Research,” BioSpectrum Asia Edition (July 31, 2007). 182 Yu-Shan Wu, Taiwan’s Developmental State” (2007) op. cit. p. 23. 183 “ITRI and NCKU Collaborate on Biomedical Device Related Technology,” Business Wire (May 7, 2009). 184 “Gene Chip Venture Phalanx Inaugurated,” China Post (January 24, 2003). 185 .

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APPENDIX A3 333 for producing various proteins and viruses and non-adherent cell cultures including embryonic stem cells.186 ITRI spun off DailyCare Biomedical in 2004 to commercialize low cost, portable medical devices for home core users. The company’s new CEO was K.P. Lin, the former chief of ITRI’s Biomedical Engineering Center.187 The care technology underlying one of these products, ReadMyHeart, a portable electrocardiogram, was developed by ITRI’s BEC.188 This product was approved for use in Japan in 2007, representing the first non- Japanese company to obtain a class-II medical device license under Japan’s Pharmaceutical Affairs Law, which took effect in 2005.189 FUTURE DIRECTIONS The Statute for Industrial Innovation (SII) enacted in 2010 is the most recent of the promotional statutes that have provided the institutional framework for Taiwan's industrial development. SII represents a departure from the previous laws in that it provides not only for the promotion of manufacturing but also agriculture and services, and seeks to redirect Taiwan from its focus on manufacturing toward innovation, "soft power," development of national brands, and advanced logistics.190 ITRI currently singles out 20 sectors which represent developmental priorities.191 Current ITRI developmental projects are underway addressing themes relevant to all of the smart industries noted above as well as biotechnology, TABLE APP-A3-11 Taiwan’s Developmental Priorities Emerging Industries Smart Industries Service Industries Health Care Cloud computing WiMAX Biotechnology Smart electronic vehicles International medical Quality agriculture Smart green buildings High tech finance Tourism Patent industrialization Music/digital content Cultural/creative Exhibitions Green energy International logistics Urban renewal International cuisine Chinese e-commerce High education output 186 Hera Andrade-Zaldivar, Leticia Santos and Antonio De Leon Rodriguez, “Expansion of Human Hemapoietic Stem Cells for Transplantation: Trends and Perspectives,” Cytotechnology (March 2008). 187 “DailyCare Announces Telehealthcare System,” Taiwan Economic News (November 28, 2005). 188 Dodgson, et al., “Biotechnology Innovation Networks” (2008) op. cit. p. 440. 189 “DailyCare’s Handheld ECG Penetrates Japan’s Medical Device Market,” Taiwan Economic News (May 15, 2007). 190 SII established a uniform 17 percent corporate tax and eliminated tax incentives except those associated with R&D. 191 ITRI International Center, “Innovation Industrialization Corporation (IIC) Program Proposed for Bridging the Cooperation Between the United States and Taiwan” (February 14, 2012).

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334 21ST CENTURY MANUFACTURING health care, quality agriculture, green energy, and WiMAX. In most cases ITRI has formed industry alliances to prepare for the production of the new technologies. ITRI is also developing what it characterizes as the latest in a series of related electronic hardware technologies which incorporate semiconductor technology, including solid state lighting (LED), resistive random access memory (RRAM, high-speed, low power consumption semiconductors) 3D television, flexible electronics, “floating image,” and optoelectronic medical devices.192 ITRI is currently seeking to strengthen its capability in “upstream” pre- competitive R&D, to enhance the interdisciplinary character of its work, and to shift from an emphasis on the manufacture of components to development of systems, services and applications.193 CONCLUDING PERSPECTIVE Taiwan’s economic development and ITRI’s role in creating advanced industries have been widely studied, but the extent to which the ITRI model is adaptable elsewhere is unclear. The circumstances underlying Taiwan's success are not necessarily present in other countries and for that matter may not always be present in every case in Taiwan itself. The creation of ITRI brought together cosmopolitan elite commanding a vast pool of knowledge absorbed from the world’s finest research universities and the most technologically advanced international companies. This remarkable founders’ generation was backed in its efforts by a government in which the ruling party held a monopoly on political power and an abiding belief that economic policy should be conducted by skilled professionals shielded from political pressure. Government funding 192 In January 2012, ITRI reported a breakthrough in LED technology which overcomes the longstanding problem of a LED bulb's narrow beam angle. The prototype LED weighs less than half of a normal LED bulb, is unbreakable, can be manufactured at low cost, and has a beam angle of 330 degrees. “ITRI Develops Wide Beam Angle LED Bulb.” Central News Agency (January 31, 2012). "Floating image" refers to a technology in which a device projects an image I the air in front of a person. In some cases the image may consist of a keypad which can be operated by poking a finger through the images of keys, motion which the device detects with a sensor. The device can be operated in this manner without human touch. Interview with Dr. Yi-Jen Chan, Director, ITRI Electronics and Optoelectronics Research Laboratory, Hsinchu, Taiwan, February 14, 2012. MOEA indicated in April 2012 that the government was planning to invest $339 million between 2012 and 2015 in the development of smart handheld devices and an associated supply chain. "Over NT $10 Bil. To be Pumped Into Smart Device Sector: MOEA," China Post Online (April 7, 2012). MOEA reportedly plans to task ITRI to develop core components technology and to explore customer- oriented applications for smart handheld devices. “Taiwan Smart Handhelds to Top US $43.8 billion,” Taiwan Today (September 13, 2011). 193 Interview with Dr. Yi-Jen Chan, Director, ITRI Electronics and Optoelectronics Research Laboratory, Hsinchu, Taiwan, February 14, 2012.

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APPENDIX A3 335 for ITRI was substantial and sustained.194 Ancillary government laws and policies were implemented to support ITRI in areas such as human resources, venture capital, and creation of science parks, intellectual property protection, and start-up of new companies. Replicating this mix of factors would be a challenge for any government. ITRI has remained relevant by continual focus on its original, carefully- defined mission—not that of a research laboratory, but of a bridge connecting the international research community to small and medium Taiwanese businesses which—although entrepreneurial and highly motivated—lack the resources to conduct research and stay abreast of international technology trends. ITRI has developed institutional practices and policies which serve this mission:  Its policy of encouraging its own personnel to leave after four to five years continually seeds Taiwanese industry with experienced and technology-savvy leaders.  Its technology integration centers perform an internal interdisciplinary silo-breaking function which in its later stages is passed along to the private sector in the form of complete industry supply chains developed in ITRI-led industry alliances and research projects.  The physical proximity of researchers, labs and companies in the Hsinchu technology cluster fosters continual knowledge spillovers from the research community to private companies.  ITRI’s incubation center provides innovative start-ups with technology with commercial potential, business and legal advice, funding opportunities, access to research facilities, and introductions to potential customers and investors.  ITRI’s international outreach efforts acquire technology, but are also leading to foreign research efforts located in Taiwan itself with participation of Taiwanese companies. Significantly, ITRI has not veered off course to pursue Nobel prizes or engage in industrial empire-building like Japan’s Ministry of Economic Trade and Industry in the 1960s and 1970s. It has maintained its focus on its core mission of technology intermediation between the global research community and Taiwanese companies.195 194 ITRI’s annual budget from MOEA passes “legislative reviews without questions, which shows that the institute’s achievements have won approval from all political parties.” “ITRI Has Contributed Greatly to Taiwan’s Premier,” Asia Pulse (May 23, 2006). 195 Dr. John Chen, Director of ITRI’s Display Technology Center, comments that the 50-50 split in ITRI’s funding between the government and the private sector forces ITRI to stay on-mission to remain relevant to industry. Half of its income derives from the sale of IP, technology licensing and the provision of knowledge-based services to industry. Interview with John Chen, Hsinchu, Taiwan, February 13, 2012.

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336 21ST CENTURY MANUFACTURING ITRI’s successes have been based, above all, on the excellence of its scientists, engineers and managers. Originally ITRI was able to draw upon a large number of U.S.-educated Taiwanese with relevant work experience in multinational corporations. Today it increasingly recruits graduates from domestic universities with strong and improving programs in engineering and the sciences. The competitiveness of the industries in the Hsinchu technology cluster “derives from the availability of a significant pool of well-trained workers and technical and managerial personnel [from ITRI and Hsinchu’s two science-based universities] who now stand in comparison with the concentration s of talent in other [global] R&D intensive locations.”196 Business Week terms this pool “one of the deepest reserves of high tech talent in the world.”197 Its existence reflects decades of public investment in education, both in promotion of study abroad and in upgrading the domestic educational infrastructure.198 196 Mathews and Hu, “Enhancing the Role of Universities,” (2007) op. cit. p. 1006. 197 “Why Taiwan Matters,” Business Week (May 16, 2005). 198 Soren Eriksson, “Innovation Policies in South Korea and Taiwan,” Vinnova Analysis Va 2005:03 (2005) p. 31.